7/10/2013

Inside Korea's Two-Tiered Economy by Tom Coyner

In preparation for a BBC television interview (which failed to happen due to Skype Internet difficulties), I looked into the indicators and foundations of current South Korean sentiment. What I discovered was much less sanguine than official Bank of Korea statistics that the news agencies and embassies frequently quote.

In addition to the below excellent report from which I can personally recognize a number of young Koreans who fit the article's descriptions, please consider findings from Gallop Korea's recent report. During the second half of each November, Gallop Korea polls some 1500 South Koreans above the age of 19. This past November's results were largely similar to those of November 2011, polling sentiments about the coming calendar year.

Here are some of the highlights: "How do you feel the ROK economy in 2013?" (percentage of replies) Worse: 40% (previous year's poll had a 'worse' rating of 43%) Better: 12% (no change from the previous year's poll) Similar: 46% (previous year's poll 'similar' rating was 43%) "How will your household fare in 2013?" Worse: 27% Better: 17% Similar 55% "What will happen with unemployment in 2013?" Decrease: 10% Increase: 48% Similar: 39%

Of interest is that the first two questions' results, given the 2.1% margin of error, were statistically identical for the past two years. If there is any optimism about 2013, it would be because there is a 6% rise in expectations that unemployment will decrease versus a 3% drop in those expecting unemployment to increase. Still, given that half of the population believes unemployment will rise in 2013, I would caution government workers and politicians not to cheer too loudly. Now, contrast the above with today's Reuters news release on the Bank of Korea's sanguine report that customer sentiment was the strongest in 8 months at 102 versus Decembers 99 score, with 100 representing neutral feelings. The BOK also projected the coming 12 months to be just 3.2% - which is entirely in line with fantasies that this government agency has been broadcasting for the past years.

Obviously, whoever decides what goes into the economic basket of indicators has considerable influence on the results. For most South Koreans, more significant inflation can be seen in the substantial increases of food prices, utilities (electrical rates alone were hiked 4.9% last August and will go up another 4.0% this month). And many expect taxi rates to soon rise.

When it comes to unemployment, the most important figures are those assigned to young people. While the national unemployment average is officially recognized as being only 3.0%, only 60.1% of Koreans in their 20's are recognized as participating in the economy. And, of course, to have a part-time job, including working at a convenience store with a college degree, means one is "employed." Even so, at the end of 2012, youth unemployment was recognized to be only 7.5%.

No one seems to bother, however, how to reconcile 39.1% of young people being economic non-participants with just 7.5% unemployment. As the below article points out, Korea's largest 194 companies this past year offered 18,950 (down from 20,500 offered the previous year) career potential, entry-level jobs. Considering that virtually all South Koreans complete high school and a good 80% graduate from college or university, it is unsurprisingly that in 2012 a large portion of the 300,000 college graduates competed for those 18,950 jobs.

Possibly due to many discouraged job seekers having returned to college to gain additional degrees, we may expect as many 500,000 graduates out on the job market as soon as 2015. As the below article points out, many young Koreans have pretty much given up on marriage and raising children. It comes as no surprise that South Korea has one of the lowest birth rates among OECD countries. While many countries have a traditional pyramid-shaped demographic profile, South Korea has a distinctly diamond-shaped profile.

Finally, allow me to suggest why the consumer price index is as good as it may be. It could well be that many Koreans in their 20’s and 30’s are living at home, forsaking marriage without saving for their independent housing, but making the best out of a dire future by living for today by consuming more for short-term pleasures to somehow make up for their long-term disappointments. Given all of this and much more, the "news" about small, single-digit improvements in government statistics about CPI, inflation, unemployment seems divorced from the greater reality that makes up most Koreans' lives.

The real story is much more complicated, but few international news agencies take the time to dig down and discover what is actually happening with the majority of South Koreans. The real story is much more fascinating, if at times grim, suggesting that Korea could be operating on a two-part economy - that of large companies and the wealthy as opposed to that of small- and medium-sized companies and the majority of South Koreans. But that topic must be reserved for another message.

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the only non-Korean to have worked as an attorney for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.